Issues
Current Market OutlookWe’ve now seen four constructive weeks in a row for the overall market, not just because the major indexes are rallying, but also due to the amazing breadth during the advance (a good longer-term sign and indicative of a vacuum of selling pressure) and the action of individual stocks, a ton of which are setting up good-looking launching pads. That said, it’s not all peaches and cream—the intermediate-term trend is still on the fence (could turn up this week, but hasn’t quite yet), most indexes and stocks are below longer-term moving averages and, after four good weeks, some shakeouts and potholes (possibly on earnings) could emerge. Overall, we’re optimistic and are bumping up our Market Monitor to a level 6, but it’s best to step (not plunge) into stocks and keep looking for lower-risk entry points.
This week’s list contains another batch of great stories, with a variety of strong charts (some coming off lows, others at new highs, others setting up). Our Top Pick is Coupa Software (COUP), which is in a strong group and has seen superb buying volume in recent days.
| Stock Name | Price | ||
|---|---|---|---|
| Alarm.com (ALRM) | 71.33 | ||
| Bilibili (BILI) | 28.71 | ||
| Coupa Software (COUP) | 262.20 | ||
| Cronos Group (CRON) | 17.62 | ||
| HubSpot (HUBS) | 582.89 | ||
| Lending Tree (TREE) | 411.51 | ||
| LPL Financial Holdings (LPLA) | 85.22 | ||
| Novocure (NVCR) | 0.00 | ||
| Pinduoduo (PDD) | 87.53 | ||
| Veeva Systems (VEEV) | 180.23 |
The rally off the climactic Christmas Eve low has been very impressive, triggering our 2-to-1 Blastoff Indicator that prompted us to put some money back to work last week. Since then, the action has been encouraging, and our Cabot Tides are close to a new Buy signal. If it comes, we’ll put more of our cash into potential leading names.
Change in weather and change in markets seem to be the norm today. We certainly had an extreme case of market volatility last year, with the Dow Jones Industrial Average ending up with a loss of 7.36%, the S&P 500 declined by 7.6% and the Nasdaq dropped by 5.57%.
The good news today is that both our intermediate-term market timing tool, Cabot Tides, and our emerging markets timing tool, Cabot Emerging Markets Timer, have both flashed buy signals, telling us that we should work to get more heavily invested, by buying attractive stocks at sensible entry points.
Current Market OutlookStocks had another great week, with the major indexes posting solid gains, many potential leaders approaching new highs and market breadth being so positive that it flashed a rare “blastoff” green light. Thus, our confidence is growing that the worst has passed—though that doesn’t mean the market doesn’t face many weeks of bottom building, either. Long story short, the evidence has improved, though it’s worth remembering that the intermediate-term trend of the indexes and most stocks remains down. All in all, we’re OK extending your line a bit, doing some new buying in high-potential stocks, but we’re also still keeping a good chunk of cash on the sideline and waiting for more strength to develop (maybe after a retrenchment) before turning bullish. Our Market Monitor moves to a level 5 this week.
As for the list, today is another batch of good-looking stocks from a variety of sectors, albeit with a heavier emphasis on medical. Our Top Pick is old favorite Dexcom (DXCM)—start small and build if the recent strength continues.
| Stock Name | Price | ||
|---|---|---|---|
| Array Biopharma (ARRY) | 46.35 | ||
| Cree, Inc. (CREE) | 67.96 | ||
| Dexcom (DXCM) | 421.36 | ||
| Everbridge (EVBG) | 107.90 | ||
| Five Below (FIVE) | 134.58 | ||
| Ionis Pharmaceuticals (IONS) | 73.34 | ||
| Keysight Technologies, Inc. (KEYS) | 97.20 | ||
| LGI Homes (LGIH) | 86.04 | ||
| Tandem Diabetes (TNDM) | 74.77 | ||
| Vertex Pharmaceuticals (VRTX) | 230.36 |
In the first week of 2019, a better overall stock market, weaker U.S. dollar, bargain hunting, and hopeful signs of a temporary truce in the U.S.-China trade war have all helped push our Emerging Markets Timer back into a bullish mode.
As with our prior signals, we’re not advising you to jump in with both feet since there is still a fair amount of uncertainty out there and the iShares EM Fund (EEM) needs to demonstrate staying power and work through some resistance. Still, we are extending our line a bit with our two new buys in today’s issue.
As with our prior signals, we’re not advising you to jump in with both feet since there is still a fair amount of uncertainty out there and the iShares EM Fund (EEM) needs to demonstrate staying power and work through some resistance. Still, we are extending our line a bit with our two new buys in today’s issue.
Congratulations to our big winners and thank you to all of our contributors. It was a difficult market last year, but these results reflect how—with the right expert help—it is possible to beat the markets.
In this issue, we recap our big winners from last year, and have a very nice—and diversified list—of a group of stocks that promise great potential for 2019.
In this issue, we recap our big winners from last year, and have a very nice—and diversified list—of a group of stocks that promise great potential for 2019.
The market has begun 2019 with a bang, and it well could go on longer—though prediction is a fool’s game. It’s far better to simply follow proven systems of investing, whether growth or value or hybrid, and continually work to maintain a portfolio of high-potential stocks.
This week’s recommendation, for example, is a solid grower, nothing fancy. But the stock withstood the selling of December and is now at an attractive entry point, primed to break out to new highs in the weeks or months ahead.
This week’s recommendation, for example, is a solid grower, nothing fancy. But the stock withstood the selling of December and is now at an attractive entry point, primed to break out to new highs in the weeks or months ahead.
Updates
After two near-record-setting months, stocks are encountering their first real turbulence since March. It’s no surprise.
While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.
While stocks go up an average of 10% a year, they rarely do so in a straight line. And after the S&P 500 rallied nearly 20% in April and May and the Nasdaq shot up nearly 30%, a pullback of some kind – or possibly even a true correction – was to be expected. It seems it’s happening all at once.
Stocks look set to enter the summer near all-time highs, but leadership has narrowed, volatility has ticked up, and there’s been renewed scrutiny on the AI trade and valuation concerns in some of the market’s biggest winners.
At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.
At the same time, the macro backdrop remains a mix of resilience and intermittent turbulence. While economic data continues to hold up, energy prices remain elevated due to the ongoing Iran conflict – which has no end in sight – keeping upward pressure on inflation and yields.
Tech, commodity, AI, and Explorer stocks struggled this week as concern over capital expenditures increased. Mideast tensions intensified and inflation numbers came in yesterday at their highest rate in over three years, fueled by rising energy costs. The combination of anticipated higher interest rates and rising bond yields impacted the price of precious metals, with gold sliding below $4,200 an ounce and silver falling below $64 an ounce.
Stocks look to enter summer near all-time highs, but leadership has narrowed and volatility has ticked up thanks to renewed scrutiny on the AI trade and open-ended questions about valuations in some of the hottest areas of the market.
There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.
There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.
The high-flying AI stocks got crushed on Friday. But those stocks started this week higher. Where do we go from here?
The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.
The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.
A major economic narrative that took shape in recent years was the decline and (presumptive) inevitable death of the so-called “petrodollar,” as a growing number of countries diversified their foreign exchange reserves away from the U.S. dollar and toward gold and alternative currencies like the Chinese yuan.
WHAT TO DO NOW: The overall market remains in good shape, though we are seeing some exuberance on the upside and also a few leaders begin to act sloppy. Near term, then, it’s still a coin flip as to what comes, but the vast majority of intermediate-term evidence remains bullish. In the Model Portfolio, we took partial profits in Marvell (MRVL) earlier this week; tonight, we’re buying a half-sized position (5% of the account) in Bloom Energy (BE), which is extremely volatile but also strong and coming off a few weeks of rest. Our cash position will now be around 28%.
This market just keeps going higher.
Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.
Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.
Despite the negative headlines and volatility, stocks just keep going.
After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.
After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.
This week’s Memorial Day observance marked the traditional onset of the summer vacation season for millions of Americans. It’s a time of traveling, sightseeing, picnics and parties. It’s also the peak season for enjoying cold, carbonated beverages like soda pop and energy drinks.
With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.
With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.
On the heels of a miserable March and a euphoric April, I wrote several weeks ago in this space that I thought May would determine which direction the market is truly headed, at least in the intermediate term. We have our answer, and it’s a definitive “up.”
All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.
All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.
Stocks have largely shrugged off this week’s dust‑ups in the Middle East as investors continue to bet on a near‑term memorandum of understanding (MOU) that would reopen the Strait of Hormuz and push bigger sticking points between the U.S. and Iran down the road.
Yields have cooled off this week and continue to do so this morning, thanks to a slightly lower‑than‑expected core PCE reading. April core PCE rose 0.2% month over month, below both March’s 0.3% reading and consensus, giving the Fed some breathing room as policymakers weigh the competing forces of inflation and growth.
Yields have cooled off this week and continue to do so this morning, thanks to a slightly lower‑than‑expected core PCE reading. April core PCE rose 0.2% month over month, below both March’s 0.3% reading and consensus, giving the Fed some breathing room as policymakers weigh the competing forces of inflation and growth.
Alerts
Shares of one of our stocks have been under pressure since Friday due to a short attack from a Seeking Alpha author. His article was published this morning, but I suspect a group of investors knew about it on Friday and got the action going early.
This tech stock’s relative strength was just upgraded by IBD. The company beat analysts’ EPS estimates by $0.04 in its latest quarter.
This healthcare stock beat analysts’ estimates by six cents last quarter, and analysts are forecasting double-digit growth for the company for the next five years.
Trade suggestion for Chevron (CVX) shareholders, and additional news and price changes on six other stocks.
This solar company was just upgraded to ‘Buy’ by Cabot and by Deutsche Bank, and Deutsche raised its price target for the stock to $65 per share (from $50).
This energy company’s shares just crossed above their 50-day moving average, a bullish sign.
Here’s the update on one of our stocks. The company’s earnings outlook changed after I recommended it.
This tech company issued a great quarterly earnings report and the stock price has edged up. Watch for brief dips before buying.
Here is a special update on two of our stocks.
Our first idea is a semiconductor company that beat analysts’ earnings by $0.15 last quarter.
. Our second recommendation is profit-taking on a previous recommendation.
We’re moving this stock to Hold today, after Credit Suisse downgraded the stock to neutral.
Portfolios
Strategy
A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.
A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.
Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.
Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.
Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.